Energy efficiency in the electronics supply chain

Executive brief

12 steps to a greener, more

sustainable electronics supply chain.
Global Electronics Industry

Paul Brody, Partner — IBM Global Business Services Supply

Chain Strategy
12 steps to a greener, more sustainable electronics supply chain.
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Contents
2 Defining a green supply chain
strategy
2 Carbon reduction: the new
variable in supply chain
decision making
3 Step 1: Redesign the product
3 Step 2: Reconfigure
manufacturing
4 Step 3: Shift to green suppliers
5 Step 4: Shorten distances
6 Step 5: Alter service level
agreements
7 Step 6: Shrink packaging
7 Step 7: Plan for reverse supply
chain activity
8 Step 8: Consolidate shipments
8 Step 9: Plan shorter routes
9 Step 10: Coordinate with
partners
9 Step 11: Take a lifecycle view
11 Step 12: Start now
11 Easing the transformation
Defining a green supply chain strategy
Universal awareness of global warming has electronics companies thinking
about how they can minimize the impact of their operations on the environment.
It’s not just about altruism. Like consumers in general, electronics customers
are rewarding companies that can provide high-quality products with proven
green credentials. Plus, emerging regulatory and tax environments, such as the
European cap-and-trade program, have encouraged heavy trading in carbon as
a commodity. As the price goes up and the number of carbon permits declines,
it’s changing the way that companies view their operations and supply chains and
how customers feel about using their products.
Based on its own experience, research and work with clients, IBM has reached
the conclusion that a greener supply chain is, fundamentally, a leaner supply
chain. This executive brief highlights 12 different actions IBM is helping
companies take to simplify the process of defining and implementing their green
supply chain strategies.
Carbon reduction: the new variable in supply chain decision making
IBM defines green supply chain management as the art and the science of
designing a supply chain that accounts for and optimizes the carbon footprint
as a variable in operational decisions. This means that you can approach the
challenge of achieving a green supply chain much as you would inventory or
cost reduction — that is, with two principles in mind:
• View carbon reduction as simply another decision variable in your supply chain.
• Identify the sources of carbon and reduce or eliminate them.
Consider the typical electronics supply chain. It has five tiers — raw materi-
als suppliers, component manufacturers, assembly operations, distribution
companies and retailers serving end customers. Reducing the overall carbon
footprint requires looking at each of these tiers, identifying the entities within
them, assessing the carbon they are generating and determining what actions
are required to help take carbon out of the network.
12 steps to a greener, more sustainable electronics supply chain.
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Five out of six CEOs no longer agree
with the late Nobel Prize–winning
economist Milton Friedman’s view
that the sole purpose of business is
to increase profits. IBM’s annual CEO
surveys found that corporate social
responsibility is climbing higher on
corporate agendas, with an increas-
ing focus on such external forces
as environmental issues, socioeco-
nomic factors and people skills. In
fact, the percentage of CEOs citing
environmental issues as an external
force affecting their organizations
doubled between 2004 and 2008.1
BMW Group is one of the pioneers in
developing a recycling norm—a set
of guidelines for the R&D department
to use in creating products that are
easier to recycle. Using advanced
tools such as software that allows
virtual dismantling analysis during the
development phase, the company
designs its cars to ensure optimal
recovery of key components for
recycling and reuse.
Regardless of how many tiers a supply chain has, the basic steps are
transformation and transportation. At each step, there is carbon generation.
Figuring out ways to make plants and distribution sites more energy effi-
cient and to decrease distance in your transportation network can help
you achieve two goals — a leaner, more cost-effective supply chain and a
reduced carbon footprint.
Step 1: Redesign the product
One of the first things your company might want to consider is redesigning
the product itself to have a smaller impact on the environment and consume
less energy in manufacturing, distribution or use. Simple changes can have
big implications. For example, what kinds of components go into the product?
Where do they come from? How toxic are they? How long does the battery
last? Can used products be disassembled without destroying components —
allowing those components to be recycled or reused?
Every conceivable change is an opportunity — from reducing the weight of
the product to making it easier to take apart. In some cases, innovation or
new technologies may make it possible for you to eliminate components or
subcomponents entirely, thereby eliminating a portion of the supply chain.
Step 2: Reconfigure manufacturing
There are many ways to reduce carbon in your manufacturing plant. A closer
look at the power source is an excellent start. For example, two plants that
consume the same amount of energy may have completely different carbon
footprints. That’s because one uses hydro-generated electricity while the
other operates with coal-generated electricity.
12 steps to a greener, more sustainable electronics supply chain.
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As early as 2000, IBM initiated an
intensive water and energy savings
program at its Burlington, Vermont,
semiconductor facility. In the seven
years since the program began, IBM
has reduced fuel consumption 21
percent and electricity consump-
tion 14 percent despite increasing
output. The company has also
managed to reduce fresh water
consumption by 27 percent, further
saving energy and reducing the
plant’s environmental impact.
Looking beyond the source of energy, there are ample opportunities to reduce
consumption. How is water consumed as a resource throughout the production
stages? How efficient are your plant layout and production plans? How much
inventory is produced in excess of what’s needed? Streamlining production
steps and reducing toxic materials and harmful emissions can each have a
significant impact on how green your supply chain is.
Step 3: Shift to green suppliers
Moving beyond the four walls of the plant, you can take a fresh look at your
supplier base to begin reducing the overall supply chain footprint. Are there
suppliers that use more energy-efficient processes and less toxic material?
Although they may have higher manufacturing costs, suppliers with greener
practices can help reduce the environmental impact of bringing products to
market. An analysis of suppliers may uncover potential benefits that justify
making a change.
For example, figure 1 presents findings of the Intergovernmental Panel on Climate
Change (IPCC) on the tradeoffs of different sourcing strategies for steel.2 Based
on the overall carbon footprint for each of the three sourcing options shown, it is
clear that North America is the best choice.
CO2 tons
2.5
2.2
1.5
1.72
1.46
1.0 1.06
0.5
0.70
0.49
0.25
Asia/Pacific Europe North America Sourcing options
Transportation Manufacturing technology
Figure 1: In the above illustrative scenario, the number of tons of carbon dioxide emitted per ton of
the same processed steel varies by provider.
12 steps to a greener, more sustainable electronics supply chain.
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Analysis of suppliers should include logistics providers. For example, IBM

is a member of the U.S. Environmental Protection Agency (EPA) SmartWay
program, which encourages companies to allocate a certain percentage of
their transportation requirements to environmentally responsible carriers that
use trucks that run on biofuels. By shifting some transport to SmartWay-certified
carriers, IBM was able to realize an immediate reduction in its supply chain
carbon footprint.

Step 4: Shorten distances

Electronics supply chains have grown globally over decades. Many companies
have evolved highly complex, extended distribution networks — sourcing
components from distant countries and delivering end products to customers
around the world.

Now, with the price of oil going up, some products are becoming more expen-
sive to import than to build locally. The cost of transporting finished goods from
overseas manufacturing sites may offset the savings realized from outsourcing.
In addition, the carbon emissions associated with production in countries that
are not as environmentally conscious will probably be factored into the impor-
ter cost basis as well as eventually affecting the air we all breathe. So not only
can reevaluating your sourcing strategies reduce costs, but it’s also the right
thing to do.
12 steps to a greener, more sustainable electronics supply chain.
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“ As OECD countries impose large
and growing economic costs on
their own carbon emitters, their
tolerance for those economies
who impose no costs on their own
emissions will quickly fade. Imports
from countries that do not play by
the same carbon standards will
be subject to a carbon tariff that
will countervail the implicit trade
subsidy that they derive from what
goes up their smokestacks. . . . And
for many energy-intensive industries
that joined the exodus to the
cheap labour markets of East Asia,
imposing a carbon tariff means
coming home.” 3 dependence on air freight. Transporting products by air is much more harmful
— Jeffrey Rubin, chief economist,
CIBC World Markets
Where once companies looked for the least production cost despite the transpor-
tation cost, the new, green value equation for evaluating sourcing options is actual
cost (production + transportation) + corresponding carbon cost.
By rationalizing sourcing, assembly and delivery channels in relation to markets,
you can reduce the distances that products must travel. How many transportation
lanes do you have? Where do your products travel from and to? There are
many ways to reconfigure your network to reduce the distances traveled to fulfill
demand while maintaining the required service levels. For some products, simply
locating or developing local suppliers can significantly reduce energy use.
Step 5: Alter service level agreements
Service level agreements (SLAs) that force suppliers to make small, expedited
deliveries waste energy. When such SLAs aren’t driven by valid business
needs, you have opportunities to save.
Not infrequently, companies create SLAs that reflect lack of confidence in
their suppliers’ ability to deliver shipments on time. As a result, they end up
with agreements that are unreasonably stringent and often require excessive
to the environment than land- and sea-based alternatives, especially when
shipments are fragmented and expedited.
By revisiting your SLAs, you can uncover ways to consolidate shipments. And
it may be possible to reduce the use of air freight by better leveraging ships,
rail cars or trucks.
12 steps to a greener, more sustainable electronics supply chain.
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In 2006, a North American retail giant
began a global initiative to measure
suppliers on the elimination of unnec-
essary packaging to reduce waste
and improve logistics efficiency. The
goal is to prevent hundreds of thou-
sands of metric tons of carbon from
entering the atmosphere and save
billions of dollars within 5 years.4
Step 6: Shrink packaging
Large packages take more energy to produce. And the larger the package,
the less shipment consolidation is possible.
Fortunately, new packaging materials and designs make smaller package
volumes possible while providing the same level of strength and product
protection. By reengineering packages to reduce their size and weight, you’re
able to load additional products into shipping containers or trucks and deliver
more in a single trip. Improved package designs can also help reduce the
burden of recycling or eliminating packaging materials at the end of the chain.
Step 7: Plan for reverse supply chain activity
Product recalls, upgrades and refurbishments require some kind of reverse
supply chain. In addition, when products are at the end of their useful life, it
makes business sense to recover them for disassembly and component reuse.
It also makes sense from an environmental perspective because electronics
products, in many cases, include toxic materials that must be disposed of
properly. Planning for these events up front can help you eliminate or reduce
unacceptably high energy costs and environmental impact later. How products
are designed, assembled, labeled and packaged can have a profound effect
on the efficiency of any reverse supply chain.
Reverse logistics is an area where IBM’s history and legacy can be of particular
benefit to clients. For most of this history, companies didn’t buy mainframes
from IBM. They leased time on the mainframe or leased the computer itself.
Eventually, all equipment came back to IBM. As a result of its leading-edge
experience in this area, IBM has a deep understanding of how to effectively
design products for reuse and recycling.
12 steps to a greener, more sustainable electronics supply chain.
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Step 8: Consolidate shipments

Reviewing past shipment history can reveal areas where lack of coordination,
both internally and with suppliers, has resulted in fragmentation. What started
out as a few expedited deliveries may have evolved into inefficient, point-to-
point shipments.

With a holistic view of the supply chain and proper planning, it’s possible to
replace multiple, smaller shipments with fewer, larger shipments. By consolidating
loads, you reduce the number of vehicles needed to transport the same quantity
of goods. This simple idea requires careful analysis to determine which suppliers
to use, where to locate facilities and what inventory levels to maintain.

Step 9: Plan shorter routes

As a corollary to consolidating shipments, you can also plan shorter routes.
There’s an art to planning distribution routes and choosing the right transportation
modes. Relying on intuition seldom leads to optimal solutions, and over time
tradition and inertia can allow routes to settle into patterns that are inefficient and
wasteful. Factoring in the true costs and carbon implications can lead to more
rational choices.

For example, if you have numerous trucks coming from various suppliers,
you can look for ways to reduce the total distance traveled to source the
components you use in production and assembly. Perhaps the most extreme
example is UPS figuring out which turn — right or left — requires less gasoline
and less waiting time in traffic. But most companies with a good supply chain
optimization and logistics system can actually find ways to significantly shorten
their logistics routes.
12 steps to a greener, more sustainable electronics supply chain.
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A Fortune 50 manufacturing com-
pany requested help from IBM to
model and provide reduction scenar-
ios for the carbon footprint of one of
its manufacturing divisions, given the
very large number of components
that were coming in for assembly. By
leveraging advanced analytics from
a proprietary IBM solution, the com-
pany was able to incorporate carbon
emissions calculations into planning
its logistics operations, uncovering
ways to reduce its transportation
carbon footprint by up to 25 percent.
Step 10: Coordinate with partners
Although you can make initial progress on your own, you soon will need to
integrate your efforts with suppliers and distributors. Virtually every electronics
supply chain today is a multiechelon supply chain. To the extent that you can
coordinate with your partners to have centralized points of consolidation, shared
logistics activities and shared manufacturing and supply-based locations, you
can significantly reduce the total carbon footprint of your manufacturing and
distribution processes. You must be prepared to share your goals and plans
with these allies and incorporate their plans and priorities into your solutions.
Unlike inventory management, where companies can push inventory upstream
to improve their numbers, effective management of carbon emissions allows
no such tradeoff. If suppliers are pushed into producing extra inventory to help
sustain production at a certain level, there is no reduction in the carbon footprint
of the supply chain. And if the suppliers are unable or unwilling to adopt green
practices, the result may even be greater environmental degradation. Therefore,
you need to coordinate with partners to make sure that the supply chain is as lean
as possible—producing the least amount of inventory required to meet demand.
Step 11: Take a lifecycle view
Just as you are thinking about the carbon cost of manufacturing your products,
your company should also be educating customers about carbon consumption
over the lifecycle of those products. Energy used while a product is in service
can be significant, as can the costs to recycle, reuse or refurbish it.
In fact, the carbon consumed in the lifecycle of an electronics product may be
far greater than the carbon consumed in manufacturing and getting it to market,
including all of the logistics involved. We’re used to thinking about how much
carbon is used in transformation and transportation. But once a product gets
into the hands of customers, it may often consume many times that amount of
carbon in electricity or batteries, accessories, service calls, training manuals
and other support. It’s important to think about the entire product lifecycle and
educate customers about greener products that may have a higher up-front
cost, but a substantially lower long-term cost.
12 steps to a greener, more sustainable electronics supply chain.
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The IBM supply chain management (SCM) Carbon Distribution Modeler helps
organizations take the total product lifecycle view in analyzing the carbon footprint
(see figure 2). The objective is to lower the environmental impact at all five
stages of the cycle—design and sourcing, inbound logistics, internal operations,
outbound logistics, and service and use.

Our goal can be

formulated rather simply:
Lower the outer edge.

Design and Inbound Internal Outbound Service Time

sourcing logistics operations logistics and use

Figure 2: The objective of the IBM SCM Carbon Distribution Modeler is to lower the carbon footprint
across the total product lifecycle.

For example, assuming a car travels an average of 12,000 miles per year for
three years, at 30-miles-per-gallon efficiency, it can emit between three and
four tons of carbon annually. When added to the nearly 19 tons of carbon
emitted as part of the supply chain process, that means the car has a carbon
footprint of close to 23 tons, which does not even take into consideration the
environmental cost of recovery and recycling or disposal.
12 steps to a greener, more sustainable electronics supply chain.
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12. Start now

Finally, it’s important to start now on defining and implementing your green
supply chain strategy. Although the ideas presented in this paper for reducing
your carbon footprint are fairly straightforward, implementing them takes time.
In the electronics industry, it can take up to three years to redesign products
and qualify new suppliers. With the price of energy expected to rise sub-
stantially, along with the level of regulatory requirements aimed at reducing
carbon footprints, two to three years from now may be too late to make these
transformations. Or it may be much more expensive. The cost of making rapid
adjustments in the future may be much higher than the cost of making simple
adjustments today.

Easing the transformation

As demonstrated by the number of ideas presented in this brief, there’s no one
answer for defining an effective green supply chain strategy. By leveraging
innovations from its research division and proven best practices from its internal
supply chain group, IBM is well positioned to help you with the transformation.

IBM has invested heavily in the research, methodologies, tools and technologies
required for building a greener supply chain. It has consolidated these assets
into an approach that takes an inside-out view of how the supply chain functions
and where there opportunities exist to optimize processes with a reduced carbon
footprint in mind.

This approach starts within the four walls of the plant—looking for ways to make
your processes more efficient and less carbon-intensive. IBM has designed and
validated a tool internally called the IBM Green Sigma Dashboard, which uses
the principles of Six Sigma business management strategy—but from a different
perspective. That perspective is the voice of the environment — instead of the
voice of the customer. Using the Green Sigma Dashboard, companies can more
easily monitor and control energy consumption and take corrective action when
performance falls outside defined parameters.
Moving outward from the plant, the focus turns to what’s coming in and what’s going
out. The Carbon Tradeoff Modeler from IBM can help you identify and analyze the
inflows and outflows of particular sites to uncover opportunities for consolidating
shipments, changing transportation lanes and taking other steps to reduce
overall distances traveled.
Finally, the IBM approach moves to analysis of the entire network. IBM Supply-chain
Network Optimization Workbench and IBM Warehouse Site Planner software can
help companies reconfigure their distribution network for a smaller carbon footprint.
These are just a few examples of the kinds of resources IBM has available to
assist you in defining a green supply chain strategy that sustains the desired level of
customer service at reduced cost to your company and to the environment. The
IBM approach helps you decide which opportunities deserve investment now and
which can wait — initially focusing on the opportunities you control and then looking
outward to opportunities you can share with your partners upstream and down.
For more information
To learn about how IBM can help you define a green supply chain strategy, visit:
ibm.com/electronics/green
About the author:
Paul Brody is a partner in the IBM global electronics industry consulting practice.
Paul has more than 10 years of supply chain and business strategy consulting
experience, including work in the United States, Europe, Asia-Pacific, and Africa.
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1 IBM CEO Study 2008.
2 Modified based on a graphic included in an
Intergovernmental Panel on Climate Change
report, 2006 IPCC Guidelines for National
Greenhouse Gas Inventories, http://www.ipcc-
nggip.iges.or.jp/public/2006gl/index.html.
3 CIBC World Markets, Inc., “Coming Home,” Jeffrey
Rubin, StrategEcon, March 27, 2008.
4 Mindy Fetterman, “Wal-Mart grows ‘green’
strategies,” USA Today, September 25, 2006.
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